A Career in Financial Operations

An operations professional is an integral part of a financial organization and one that doesn’t get much attention, unless something goes wrong. They are the pit crew that keeps the racing team on the track and running smoothly. Without them, there is no race. They aren’t glamorous, don’t meet with clients and don’t generate revenues for the firm. But without a competent back office, you’re firm won’t be in business for very long.

What is an Operations Professional?

Operations pros are behind the scenes employees that make a bank or financial firm run smoothly. Someone who works in the “back-office, helps support the ongoing operations of a financial institution. This entails making sure customer accounts are opened and customer information maintained, trades are executed and settled properly, and assist the clearing and settlement of trades. They are familiar with the functions of broker-dealers businesses.

What does an Operations Professional do?

Back office employees handle all the administrative and clerical work of investment accounts. They fix trade problems or “breaks”, ensure payments, alert clients of margin calls, wire department, alert to buy-ins, lend out securities for short selling and many other functions.

A growing trend in the financial industry has been increased regulation and often this falls into the operations professional. Identify regulatory “red flags” and address or report these to their appropriate supervisor or regulatory body.

What are the Different Types of Operations Professionals?

Prime brokerage

Prime brokerages are the support systems for institutional investors-hedge funds and major asset managers. Their presence has grown in conjunction with the explosion in capital pouring into hedge funds over the last decade. Prime brokers clear trades on exotic transactions and complex products, often determining the value of the positions. Operations professionals are tasked with monitoring the collateral that’s posted by clients, depending on the value they sometimes set on these positions. Also, the collateral can actually be re-used by the prime broker, called re-hypothecation. All of these types of activities are the realm of prime broker operations professionals. Prime brokers have been hiring while back office positions at traditional wirehouses have been cut due to restricted levels of trading due to regulations (Dodd-Frank, etc).

Funds transfer

Wire transfers are covered here, whether it’s transferring over an entire account (like in a rollover) or a basic funds wire transfer. Some wires are international wires use the SWIFT system. There are often glitches that these professionals must deal with to ensure ongoing business.

Also included in funds transfer is reinvestments and sweeps. Sweep accounts have become very important as funds are sold but not yet deployed into another allocation. They typical sweep account is a money market account which is considered a cash equivalent. But it is possible for these money market funds to lose money and an operations professional must be mindful of this. For example, during the Lehman Brothers crisis, the Reserve Primary money market fund “broke the buck”, meaning $1 invested in the fund was worth less (in this case, 97 cents on the dollar).

Client on-boarding

This is essentially everything dealing with bringing on a new customer. Making sure all the opening documentation is complete and accurate. Sometimes a new account is opened specifically for an impending transaction or deal so the accuracy of such a quick and smooth transition is essential.

Firms are required to “know their customer”. Customer information needs to be updated whenever anything materially changes in their situation. If not, the firm is opening itself up to potential violations and potential litigation or fines.

Proper monitoring of all investment documents can be a tough task, especially as more complicated investment products come along. Each probably has disclosures and new forms that need to be signed. With several AML (Anti-Money Laundering) initiatives currently in place, it is very important for these operations to be in full compliance.

Margin

Maybe no single area is as important as this department. Margin trading occurs when your broker allows you to buy securities with a value greater than the actual amount of money you have in your account. In a margin account, the broker loans you money to buy up to twice the value of your portfolio. This is a very profitable business for the banks. When the market is going up, all is well. But when the market goes down and you’re on margin, you can quickly lose money. If the value of your account goes down enough, you get a margin call and you’re required to sell some of the stocks you bought to raise cash to cover the loan. It’s important the operations professional is on top of this as margin calls can come quickly and seemingly out of nowhere in very volatile markets. Sometimes the operations person has to actually sell the stocks in the clients account themselves.

Lending

Securities lending occurs when someone borrows a stock out of your account and sells it and promises to redeliver it at a later date, called a short sale. This type of trade is a bet that a security will decrease in value. But you have to have actually agreed to find and borrow someone’s stock before you sell it, called ‘locating’. It is the job of an operations professional to locate the stock for the client and charge them interest (since it’s technically a loan).

Locating has become very important because if a trader or investor sells a stock it doesn’t own, without designating it as a short sale it’s a violation. This is referred to as naked short-selling and has been blamed for bringing down various institutions. In China, it might land you in jail.1 Regulators can be particularly harsh when a firm, or its customers, engages in these types of activities, especially when the stock market is in a downturn. It’s the job of a good operations person to detect these occurrences and get the process reported and stopped as quickly as possible.

What are the Required Skills and Credentials of an Operations Professional?

To be in operations at a broker-dealer you need at least a high school degree and an associates or bachelor’s degree is preferred. Most entry-level operations employees must take the Series 99 exam if they work at a broker-dealer. This test “assesses the competency of an entry-level representative to perform his or her job as an operation’s professional” according to FINRA.2 The test assesses that the employee can handle the responsibilities the position requires, including receipt and delivery of securities and fund and account transfers.

What is the Compensation for Operations Professionals?

Most operations people make between $50,000 and $75,000. According to Glassdoor, the average salary for operations analysts is $66,883.3 A good operations manager is invaluable to an organization and deservedly commands a high pay, often six figures.

How do I Become an Operations Professional?

Back-office openings ebb and flow with the general economy and the financial sector. When financial firms are making money, especially those trading operations requiring clearing support personnel are in demand.

If you want to be in operations, target employment at prime brokers-these entities service the buy-side, which has experienced significant asset growth relative to the brokerage sell-side who has been cutting back on prop trading and thus, back office.

There are often job openings for operations staff across many job boards. Entry level operations are very important but not particularly prestigious position so they’re not too competitive. Back-offices sometimes get flooded with work and hire temporary workers. You can get in as a ‘temp’ and try and parlay that into a full-time position. Get to know someone in the back office at a broker-dealer and let them know you’re interested in working there.

Operations professionals don’t always get the fame or make deadlines but they are an integral part of a financial firm’s existence. Without their deft foresight on risk management, there would have been many more spectacular bankruptcies making headlines.